Senator questions hospitals over 340B drug funds

Sen. Chuck Grassley (R-Iowa) is asking three North Carolina hospitals to explain their use of a federal discount drug program after news reports described how the hospitals charge their patients a big mark-up on certain drugs, such as cancer-fighting drugs.

“The discount drug program is meant to help the poorest, uninsured patients,” Grassley said in a statement. “It’s not meant to subsidize other hospital services and build up hospital surpluses. If hospitals aren’t passing drug savings on to patients, they’re abusing the system. They’re also abusing the taxpayers, including those who already subsidize the massive tax breaks given to tax-exempt hospitals. I’m looking for some answers about program use.”

Grassley, the ranking member of the Senate Committee on the Judiciary, wrote to Carolinas Medical Center, University of North Carolina Hospital, and Duke University Health System about their participation in the federal 340B program. The 340B program is meant to help the poorest, uninsured patients who receive treatment through entities including hospitals, qualified health centers, and children’s hospitals. The program is meant to lower outpatient drug prices for the uninsured.

Increasingly, the program is under scrutiny as it gains popularity. In a September 2011 report, the Government Accountability Office (GAO) noted an inadequate level of oversight by the Health Resources and Services Administration and a lack of necessary direction on program requirements. Of greatest concern to Grassley is the GAO finding that “the 340B program has increasingly been used in settings, such as hospitals, where the risk of improper purchase of 340B drugs is greater.”

“As the improper use of the 340B program increases, so does the financial liability to the federal government,” Grassley said.

The letters are only the latest effort from Grassley concerning the 340B program. In March 2012, Grassley and three other senators and a member of the House of Representatives asked a wide range of stakeholders for a detailed accounting of how they operate the 340B program. The letters were triggered in part by a recent article in The News & Observer, a Raleigh newspaper, suggesting that certain North Carolina nonprofit hospitals are making excessive profits from markups on cancer drugs. The newspaper article and letters from Grassley highlight examples of significant differences between the amounts hospitals paid for cancer drugs compared to the amounts billed by those hospitals for the drugs and the payment amounts allowed by Medicare.

The letters follow a recent announcement by the HRSA Office of Pharmacy Affairs, the federal agency charged with managing the 340B Program, that it will begin audits of 340B Program participants. The audits will focus on 340B eligibility status, preventing diversions and duplicate discounts, and other program violations.

The requests for information included in the letters could be instructive for 340B participants. These are some issues raised in the letters that could trigger increased scrutiny by the government:

  • total revenues received by the participant from participation in the 340B Program;
  • the amount of reinvestment of 340B savings in benefits for the uninsured;
  • differences in pricing of drugs across different third-party payers;
  • the characteristics of a hospital’s indigent care population and composition, and its policies on charitable care;
  • the frequency of Health Resources and Services Administration (HRSA) audits of the 340B Program.